CP Rail buys US regional railway

CALGARY — Canadian Pacific Railway announced that it has bought Dakota, Minnesota & Eastern Railroad Corp. and its subsidiaries (DM&E) for US$1.48 billion.

The deal expands CP’s current network by approximately 2,500 miles and increases its access to U.S. Midwest markets including agri-products, coal, and ethanol.

“The DM&E is an excellent fit for Canadian Pacific making this a strategic end-to-end addition to our network,” said Fred Green, President and CEO of CP. “The DM&E is a high-quality, growing regional railroad that complements our existing franchise. This investment presents the opportunity for future growth through further expansion of our network and is accretive to our EPS in 2008.”

CP and DM&E say there are natural
synergies between the two railroads.

The DM&E, based in Sioux Falls, S.D., is the largest regional railroad in the U.S. and the only Class II railroad that connects and interchanges traffic with all seven Class I railroads, connecting with Canadian Pacific at Minneapolis, Winona, MN and Chicago.

It has rolling stock that includes 7,200 rail cars and 150 locomotives. It serves eight states; Illinois, Iowa, Minnesota, Missouri, Nebraska, South Dakota, Wisconsin and Wyoming with access to Chicago, Minneapolis/St. Paul, Kansas City and key ports.

“There are natural synergies between our two railroads which make this a very attractive transaction,” adds Green. “We have a solid transition plan that I am confident we will implement successfully … This includes CP’s intention to spend an additional US$300 million of capital for further upgrading of the regional railroad over the next several years.”

Future contingent payments of US$350 million will become due if construction starts on the Powder River Basin expansion project prior to December 31, 2025. Further future contingent payments of about $700 million will also be required upon the movement of specified volumes of coal from the Powder River Basin prior to December 31, 2025.

The Powder River Basin is North America’s largest and most rapidly growing source of low-cost, low-sulphur coal as well as the largest single rail market in terms of volume.

“The logic of this acquisition is compelling,” said Kevin Schieffer, President and CEO of the DM&E. “CP is not only a natural operating fit; we also share a commitment to our employees, our customers and the communities we serve as well as a vision for the potential of the Powder River Basin.”